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2016 (12) TMI 685 - HC - Income TaxReference to TPO without jurisdiction - TPA - Held that - We are unable to hold that the reference to the TPO is without jurisdiction. Sec. 92CA(1) envisages that where the assessing officer considers it necessary or expedient to do so, he may with the approval of the Commissioner refer the computation of the arm s length price in relation to the concerned international transaction to the TPO. In my opinion, the said section does not contemplate that the assessing officer has to first come to a definite finding that there is an international transaction within the meaning of Sec. 92B before he can exercise his power to refer the matter to the TPO. So long as he is of a prima facie view that an international transaction is involved and it is necessary or expedient to refer the computation of the arm s length price in relation thereto to the TPO, he will be well within his powers to do so. It is needless to say that the proceeding before the TPO will be only upon notice to the assessee who will have full opportunity of urging before the TPO that no international transaction is involved. In the present case, PWH shall have full opportunity of impressing upon the TPO that it and Services BV are not associated enterprises. Whether or not Services BV participates directly or indirectly in the management or control or capital of PWH and whether or not at least one of the conditions mentioned in the sub-paragraphs (a) to (m) of Sec. 92A(2) of the Act is satisfied, are factual issues which the TPO is equipped and competent to decide. It is not proper or convenient nor desirable for a Writ Court to go into such disputed questions of fact. Further, the decision of the TPO is in the nature of an opinion. The TPO will send his opinion to the Assessing Officer who shall conduct the re- assessment proceeding taking into consideration such opinion of the TPO and upon notice to the assessee. The opinion of the TPO is not binding on the Assessing Officer. The assessee will have a second opportunity of arguing before the Assessing Officer or before the Dispute Resolution Panel as envisaged under Sec. 144C of the Act that the parties involved are not associated enterprises and hence there is no international transaction and consequently reference to the TPO was without jurisdiction. If so satisfied, the Assessing Officer would be at liberty to ignore the opinion/report of the TPO. Thus the reference to the TPO under Sec. 92CA(1) of the Act should not be interfered with by the Writ Court at this stage. The nature of transaction between PWH and Services BV is not totally clear. We are not in a position to hold that the factual issues contemplated in Sec. 92A(1) and (2) of the Act do not exist and as such the reference to the TPO was without jurisdiction. No case of mala fide or ex facie lack of jurisdiction has been made out by the petitioners and it is of the considered opinion that we should not stifle the reference to the TPO by nipping the same in the bud. If the stand of the writ petitioner company is bona fide and indeed if no international transaction is involved, see no reason why the company should shy away from the proceeding before the TPO and not urge and establish the same in the proceeding before the TPO. Thus matter set aside to hold proceedings afresh
Issues Involved:
1. Jurisdiction of the reference to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Income Tax Act. 2. Definition and applicability of "international transaction" under Section 92B of the Income Tax Act. 3. Determination of "associated enterprises" under Section 92A of the Income Tax Act. 4. Validity of past assessments and consistency in the Department's stance. 5. Procedural fairness and adherence to principles of natural justice. Issue-wise Detailed Analysis: Jurisdiction of the Reference to the TPO: The primary issue is whether the reference made by the Assistant Commissioner of Income Tax to the TPO under Section 92CA(1) of the Income Tax Act is without jurisdiction. The petitioners argued that such a reference can only be made if there is an "international transaction" between "associated enterprises," which they contended was not the case here. They claimed that the conditions for an "international transaction" under Section 92B and "associated enterprises" under Section 92A were not met. However, the court held that the assessing officer only needs to have a prima facie view that an international transaction is involved to refer the matter to the TPO. The TPO will then determine the factual issues, and the assessee will have the opportunity to contest this before the TPO and later before the Assessing Officer or the Dispute Resolution Panel. Definition and Applicability of "International Transaction": The petitioners contended that their interactions with Services BV did not constitute "international transactions" as defined under Section 92B of the Income Tax Act. They argued that Section 92B(2) extends the scope of "international transaction" but only in a tripartite situation involving unrelated persons and associated enterprises. The court did not delve deeply into this argument, stating that the TPO is the appropriate authority to determine whether the transactions in question qualify as international transactions. Determination of "Associated Enterprises": The petitioners argued that PWH and Services BV are not "associated enterprises" as defined under Section 92A of the Income Tax Act. They emphasized that Section 92A(1) should not be read independently of Section 92A(2), which lists specific conditions that must be met for enterprises to be considered associated. The court, however, noted that whether these conditions are met involves factual determinations that should be made by the TPO, not the Writ Court. Validity of Past Assessments and Consistency in the Department's Stance: The petitioners pointed out that in previous assessment years, the Department had accepted that transactions between PWH and Services BV were not international transactions. They argued that the Department should not take a different view in subsequent years on the same set of facts. The court acknowledged this argument but stated that new facts or previously unknown facts could justify a different view in subsequent years. The court left it open for the petitioners to argue this point before the TPO. Procedural Fairness and Adherence to Principles of Natural Justice: The court emphasized that the TPO's proceedings must adhere to principles of natural justice, giving the petitioners full opportunity to present their case. If the TPO has already conducted ex parte proceedings or passed an order, the court directed that these should be set aside, and fresh proceedings should be conducted with proper notice and opportunity for hearing. Court's Conclusion: The court concluded that it is not appropriate for the Writ Court to interfere with the reference to the TPO at this stage. The TPO is the designated authority to determine the factual issues related to whether the transactions are international transactions and whether the parties are associated enterprises. The court directed that the TPO should issue a fresh notice and conduct proceedings afresh, adhering to principles of natural justice. All points raised by the petitioners are left open for determination by the TPO. The writ petitions were disposed of with no order as to costs.
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